Jan. 14, 2012 – 2:49 p.m.
Political Economy: Equity and Equality
By John Cranford, CQ Columnist
Americans don’t really disagree all that much about economic ideology. Despite assertions from some on the right, almost everyone here is a capitalist at heart. There are disagreements, of course, when it comes down to the scope of the government’s role in managing the economy, regulating business practices and the like. But we still mostly believe in private enterprise at the core.
That’s why what’s going on in the Republican presidential contest is so interesting. Fundamentally, the challenge being directed at Mitt Romney’s involvement with private equity acquisitions — and assertions that he was responsible for job losses, not job growth — goes to issues of fairness, wealth inequality, and the battle for dominance between labor and capital.
Sizable majorities of Democrats and independents in the Pew survey perceive a “strong” or “very strong” conflict between the rich and poor in the United States. Even 55 percent of Republican respondents said they see this conflict. These figures reflect a sharp shift from just two years ago, when majorities of Republicans and independents disputed the idea that the haves and have-nots might be at odds.
Some on the left will use the attacks on Romney to say that even Republicans see that capitalism can go too far. Some on the right will worry that is the case. In fact, what’s really going on may be something as simple as the residual effects of an economy that had been relatively stagnant over the past decade until it fell off a cliff.
Americans may not want so much to throw off the brutality of creative destruction — or the inherent inequality of the marketplace — as they want to feel like they aren’t playing in a rigged system. They want to think they have a fighting chance to stay out of the way of the vultures and the profiteers — or, even better, to join them.
Bain Capital’s practice of buying companies and refitting them at a profit — with some people inevitably losing their jobs — wouldn’t draw so much attention if there were millions of employment opportunities being created every year.
But that’s where the economy’s varied behavior over the past two decades may paint a picture of a capitalist system that has been under stress, evolving and maybe behaving in a somewhat less friendly manner in the most recent times.
Theater or Reality?
It’s possible to tell this story broadly by looking at the patterns of employment, wages and productivity over the recent past.
Consider that in the latter half of the 1990s, the economy was running at full tilt. Gross domestic product (GDP) was expanding at about 4 percent a year, and the jobless rate dropped to a 30-year low. The median weekly earnings of workers rose 9 percent above inflation from the end of 1996 to the end of 2001. Business investment grew at a double-digit pace quarter after quarter. Both company and worker incomes were boosted by a surge in productivity that was more than twice the rate of the previous decade.
So things generally were positive. It didn’t matter that millions of jobs were eliminated every year, because millions more were created. That’s how things work in good times — and most everyone felt encouraged by it.
Then came the recession of 2001 and the static economy of the last decade. The recovery took a while to get started. GDP grew more slowly, and job growth was weaker than before. Workers were ever more productive — in part as companies carved away at any expense that seemed unnecessary, including employees deemed redundant. With the rise in productivity, corporate profits continued to mount. But real worker earnings were flat or falling.
Political Economy: Equity and Equality
And in the aftermath of the Great Recession, job growth remains weak, companies are sitting on hoards of cash that some people say ought to be put to productive use, and worker earnings were lower late last year than they were in 2001.
What has happened is complicated, but it’s easy to see how a vision of unfettered capitalism such as that embraced by Romney and Bain might be increasingly politically problematic in such an uncomfortable economic climate.
The system has its staunch defenders, of course, among them former Indiana Republican Rep. Chris Chocola, now the head of the free-market advocacy group Club for Growth. “Capitalism was never intended to be fair,” Chocola said in an interview at CQ Roll Call last week, dismissing the notion that it’s just a system for “rich guys who loot companies.” But then he fretted that the talk from Romney’s GOP critics amounted to dangerous “political theater.”
It’s political, all right, but Chocola and Romney must know that issues such as these don’t arise in a vacuum. If workers feel abused, then the sort of argument being made by Gingrich and Perry will be potentially salient come November, particularly if voters don’t think capitalism is working for them.